Fears are growing that the Fed’s aggressiveness will strain a vulnerable economy. Chatter on Wall Street has been intensifying about concerns that the Fed’s attempt to beat inflation could inadvertently push the economy into a recession.
“A recession at this stage is almost inevitable,” said former Fed vice chair Roger Ferguson. “It’s a witch’s brew, and the probability of a recession I think is unfortunately very, very high because the Fed’s tool is crude, and all they can control is aggregate demand.”
The big question now is – how do you protect your portfolio from what’s coming? Today we’ll discuss the risk-on/risk-off strategy that the pros on Wall Street use when they want to benefit from movement in both stocks and treasuries.
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Global X Adaptive U.S. Risk Management ETF (ONOF) is a passively-managed portfolio that provides exposure to the S&P 500 when conditions look more favorable but rotates into short-term (1-3 year) Treasuries when market conditions look bad.
The methodology for this fund is a little more complicated than what you find in the typical ETF. The idea is that it looks at various technical indicators to make an allocation decision. The index is based on historical data from two short-term indicators: Moving Average Convergence Divergence (MACD) and the level of the CBOE Volatility Index (VIX), as well as two long-term indicators: 200-day Simple Moving Average (SMA) and market drawdown percentage.
The trigger threshold for each signal is based on a predetermined Z-score. If the portfolio is in equities, it takes three negative indicators to switch the exposure to Treasuries. Once in Treasuries, it takes two positive indicators to switch to equities, thus, creating a higher hurdle to get out of the market than it is to enter. Based on the strategy, turnover in the portfolio should be higher than a buy-and-hold approach.
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“Project X” – Elon’s next big move
Elon Musk is testing the key to an $809 billion market revolution, and I’m not talking about electric car batteries. Dozens of industries, worth billions and trillions of dollars, will be transformed by this technology, and they can’t do it without this ONE company’s patented device…[Full Story…]